KENYA:Startups face off with banks in loan provision

Kenyan banks have started losing their market share amid growing competition from lending startups that are reaching out to borrowers using mobile phones, a new survey shows.

The past year saw the entry of four online lending startups which include Branch, Tala, Alternative Circle and Saida, according to Kenya Fintech 2017 report.

The startups have introduced an alternative lending platform that is using highly predictive behavioural analysis technologies to analyze data from a user’s phone to make credit decisions.

The report indicates credit advanced by these startups increased rapidly in the fourth quarter of 2016 (October-December), after banks started withholding credit from borrowers following the enactment of the law capping interest rates in September.

“The lending market has seen an influx of online lending startups looking to tap into the gaps left by the formal financial systems. They use innovative proprietary consumer risk assessment models which provide channels for turning digital information available on borrowers’ handsets to assess risk,” the report states.

Banking Act 2015 caps bank interest rates at four percentage points above the Central Bank’s benchmark rate, which is currently 10 per cent.

This has piled pressure on the banks' core earnings forcing them to invest more in technology in order to remain competitive.

“The lending cap law remains unclear on whether mobile lending platforms will be regulated as well. As long as this situation remains, the financial institutions employing phone based lending as well as the online-based lending startups will likely capitalize on this opportunity,” the reports states.

The earliest and most successful mobile lending platforms is M-Shwari, a partnership between Commercial Bank of Africa and Safaricom.

The lending platform was created in 2012 and uses unstructured supplementary service data to provide fast and unsecured micro-loans. The platform has a customer base of around 13 million customers.

The success of M-Shwari led to a partnership between Safaricom and KCB Group to launch a similar service called KCB- M-Pesa.

KCB-M-Pesa had advanced Sh10.3 billion in loans by August last year.

Other successful digital lending platforms include Equitel which is owned by Equity Bank and Cooperative Bank‘s M-Co-op Cash.

SOURCE:THE STAR